Test Prep Test Prep Certifications BUSINESS-ENVIRONMENT-AND-CONCEPTS Questions & Answers

• Question 461:

  Under the Revised Model Business Corporation Act, which of the following statements regarding a corporation's bylaws is(are) correct?

  I. A corporation's initial bylaws shall be adopted by either the incorporators or the board of directors.

  II.

  A corporation's bylaws are contained in the articles of incorporation.

  A.

  I only.

  B.

  II only.

  C.

  Both I and II.

  D.

  Neither I nor II.

  Correct Answer: A

  Choice "a" is correct. Under the Revised Model Business Corporation act, a corporation's initial bylaws may be adopted by either the incorporators or the board of directors. Choices "b" and "c" are incorrect, because the corporation's bylaws are a separate document not included in the corporation's articles of incorporation. Choice "d" is incorrect, because under the Revised Model Business Corporation Act, a corporation's initial bylaws may be adopted by either the incorporators or the board of directors.

• Question 462:

  Acorn Corp. wants to acquire the entire business of Trend Corp. Which of the following methods of business combination will best satisfy Acorn's objectives without requiring the approval of the shareholders of either corporation?

  A. A merger of Trend into Acorn, whereby Trend shareholders receive cash or Acorn shares.

  B. A sale of all the assets of Trend, outside the regular course of business, to Acorn, for cash.

  C. An acquisition of all the shares of Trend through a compulsory share exchange for Acorn shares.

  D. A cash tender offer, whereby Acorn acquires at least 90% of Trend's shares, followed by a short-form merger of Trend into Acorn.

  Correct Answer: D

  Choice "d" is correct. A parent corporation owning 90% or more of a subsidiary may merge the subsidiary (short form merger) into the parent without the approval of the shareholders of either corporation or the approval of the subsidiary's board. Choices "a", "b", and "c" all require at least one of the corporations to follow the general procedure for fundamental corporate changes (i.e., board resolution notice, approval by majority shares, and filing).

• Question 463:

  Which of the following statements is(are) correct regarding the methods a target corporation may use to ward off a takeover attempt?

  I. The target corporation may make an offer ("self-tender") to acquire stock from its own shareholders.

  II.

  The target corporation may seek an injunction against the acquiring corporation on the grounds that the attempted takeover violates federal antitrust law.

  A.

  I only.

  B.

  II only.

  C.

  Both I and II.

  D.

  Neither I nor II.

  Correct Answer: C

  Choice "c" is correct.

  Rule: A tender offer is a general invitation by a bidder to the shareholders of a target company to tender

  their shares to the bidder at a specified price during a specified time. A target of a takeover may ward off a

  tender offer by offering to repurchase shares from its shareholders. If a takeover will violate federal

  antitrust law, a court will enjoin the takeover.

  Choices "a", "b", and "d" are incorrect, per the above rule.

• Question 464:

  Case Corp. is incorporated in State A. Under the Revised Model Business Corporation Act, which of the following activities engaged in by Case requires that Case obtain a certificate of authority to do business in State B?

  A. Maintaining bank accounts in State B.

  B. Collecting corporate debts in State B.

  C. Hiring employees who are residents of state B.

  D. Maintaining an office in State B to conduct intrastate business.

  Correct Answer: D

  Choice "d" is correct. A domestic corporation is one created under the laws of a given state. A foreign corporation is a corporation created under the laws of another state. A foreign corporation must obtain a certificate of authority from each state in which it does intrastate business. Choices "a", "b", and "c" are incorrect because maintaining a bank account, collecting debts, and hiring employees who live within a state are not considered to be "doing business" within the state.

• Question 465:

  Which of the following parties generally has the most management rights?

  A. Minority shareholder in a corporation listed on a national stock exchange.

  B. Limited partner in a general partnership.

  C. Member of a limited liability company.

  D. Limited partner in a limited partnership.

  Correct Answer: C

  Choice "c" is correct. Unless the articles or operating agreement provides otherwise, all members of the LLC have a right to participate in management. A member of a limited liability company has the most management rights of any of the parties listed. A minority shareholder in a corporation has no management rights (and neither does a majority shareholder). A limited partner has no day-to-day management rights but may have some rights in extraordinary circumstances. It is unclear what a limited partner in a general partnership would even be; the existence of a limited partner would make a partnership a limited partnership and not a general partnership. Choice "a" is incorrect. Stockholders have very limited rights to run the corporation. They generally only have the right to elect directors and to vote on fundamental changes in the corporation. Such fundamental changes would include dissolutions, amendments to the articles, mergers, consolidations, compulsory share exchanges, and sale of substantially all of the corporation's assets. Choice "b" is incorrect. There are no limited partners in a general partnership. There are only general partners. Since there are no limited partners, there are no management rights for limited partners. Choice "d" is incorrect. Limited partners in a limited partnership have very limited rights to participate in the management of the business. In fact, if they do participate in management, they face potential liability to those who thought they were a general partner (i.e., if a limited partner becomes involved in day-to-day management is some way (participating in control), she may be treated as a general partner and lose her limited liability).

• Question 466:

  Jeb, a member in J and S LLC, sold his interest in the LLC to Chris without obtaining the other members' consent. Absent an agreement to the contrary, Chris:

  I. May participate in the management of J and S.

  II. May receive Jeb's share of J and S's profits.

  III.

  Is not entitled to anything since Jeb did not obtain the other members' consent.

  A.

  I only.

  B.

  I and II only.

  C.

  II only.

  D.

  III only.

  Correct Answer: C

  Choice "c" is correct. Absent an agreement to the contrary, if a member in the LLC sells his interest in an LLC without obtaining the other members' consent, the assignee is only entitled to receive the assignor's share of profits. Choices "a", "b", and "d" are incorrect, because, absent an agreement to the contrary, although a member of an LLC is allowed to assign his interest in profits and losses, an assignee of a membership interest may not participate in the management of the LLC.

• Question 467:

  A member of a limited liability company may generally do all of the following, except:

  A. Transfer his membership in the company without the consent of the other members.

  B. Participate in the management of the company absent an agreement to the contrary.

  C. Have limited liability.

  D. Order office supplies for the company.

  Correct Answer: A

  Choice "a" is correct. The transfer of a member interest requires the consent of the other members. Members may not assign their interest without the other members' consent. Choice "b" is incorrect. Unless the members have agreed to operate as a manager managed limited liability company, all members have the power to participate in management. Choice "c" is incorrect. Members in a limited liability company all have limited personal liability. Choice "d" is incorrect. Unless otherwise agreed, members have the right to manage the every day operations of a limited liability company. This can include the ordering of office supplies.

• Question 468:

  Heather, Erika, and Shelby are members in HES LLC. Heather works 40 hours per week and Erika and Shelby work 20 hours per week. Heather contributed $30,000 to the LLC and Erika and Shelby contributed $60,000 each. Erika and Shelby have each originated 45% of the LLC's business and Heather has originated the other 10%. Absent an agreement to the contrary, how will the LLC's $120,000 profits be divided among the members?

  

  A. Option A

  B. Option B

  C. Option C

  D. Option D

  Correct Answer: D

  Rule: Absent an agreement to the contrary, the LLC's profits will be divided among the members in

  proportion to their contributions. Here, Heather's, Erika's and Shelby's contributions were $30,000,

  $60,000, and $60,000, respectively. Thus, the profits will be divided in a 1:2:2 ratio (20% of $120,000 to

  Heather; 40% of $120,000 to Erika; and $120,000 to Shelby).

  Choice "d" is correct.

  Heather Erika Shelby

  D. $24,000 $48,000 $48,000

  Choices "a", "b", and "c" are incorrect, per the above rule.

• Question 469:

  Heather, Erika, and Shelby are members in HES LLC. Heather dies. Absent an agreement to the contrary, what is the result?

  A. The LLC must dissolve.

  B. The LLC ceases to exist.

  C. The LLC is dissolved unless the other members consent to continue.

  D. The LLC continues as though nothing happened.

  Correct Answer: C

  Choice "c" is correct. Absent an agreement to the contrary, if a member of an LLC dies, the LLC is

  dissolved unless the other members consent to continue.

  Choice "a" is incorrect, because the LLC does not have to dissolve upon the death of a member.

  Choice "b" is incorrect, because the LLC does not cease to exist immediately.

  Choice "d" is incorrect, because the LLC does not continue unless the members consent to continue.

• Question 470:

  Heather, Erika, and Shelby are members in HES LLC. Heather works 40 hours per week and Erika and Shelby work 20 hours per week. Heather contributed $30,000 to the LLC and Erika and Shelby contributed $60,000 each. Erika and Shelby have each originated 45% of the LLC's business and Heather has originated the other 10%. Absent an agreement to the contrary among the owners, who controls the management of the HES LLC?

  A. Heather, because she works the most.

  B. Erika and Shelby equally because they contributed the most.

  C. Heather, Erika, and Shelby in proportion to their ownership interests.

  D. Erika and Shelby, because they originate most of the work.

  Correct Answer: C

  Choice "c" is correct.

  Rule: Absent an agreement to the contrary, the members' voting strength is proportionate to their

  contributions.

  Choices "a", "b", and "d" are incorrect, per the above rule.